Creative Apartment Aquisition Strategies - David Lindahl?

Hello, I recently came negotiated the following deal. I would like to here eveyone’s thoughts on if this is a viable creative aquisition strategy for apartment buildings. David Lindahl, if you’re reading, your input would be greatly appreciated!! I’ve also come accross other multi-unit sellers who would accept these types of deals-

Installment Purchase of an Apartment building-

  • 15% down in cash up front; buyer takes possesion of building, and management
  • Buyer inherits current rent toll
  • Buyer makes improvements, and raises rent roll, and is entitled to keep new rent roll
  • Buyer to make another 5% payment after a few months.
  • Buyer to make final balloon payment via a refinance w/cash out after 16 months
  • Buyer to to transfer ownership of title after final balloon payment.

The economic advantages to a deal like this are obvious. Its basically free owner financing. While recieving income from the building, the buyer is only paying debt service on a small portion of the price, creating positve cash flow from the beginning. The deal ultimatly fell through because my partner and I could not find a way to secure our $$ interest spent on the property, in the form of 15% down, + improvements, + the another 5% down, to the point where we felt comfortable in laying out that kind of cash with out taking title.

I know for lease options on a single family home, the consideration money can be secured via recording the contract, but would an apartment investor feel safe with spending over $150,000 in cash protected only by a recorded option agreement? Or what would an apartment investor do with this deal? Are these types of deals done on aparments?

Or should I just forget about this type of strategy? If so, what creative purchase strategies would you recommend for apartment buildings?

Thanks in advance.

Can anyone take a stab at this? Lots of view; no replies…

I am a newby myself but maybe I’m missing something? Why would you fork over 15-20% down without taking legal ownership of the building?


The 15% down would be consideration to control the property and take possession. Its basically future rent the owner would collect, but given to him in a lump sum and applied towards the purchase price. In some cases, the owner may hand over title, but in most cases, I think a seller would want to keep title until the balance is paid off.

I would do it under a land contract. 80% financing, if they insist on the additional 5%, with the additional 5% no or low interest balloon. If not, then 85% financing. Record the contract. Then it would be a refi when you are ready. But you will likely only get 75% ltv with cash out.

Thanks Mr. Breeze for your responce. That is actually what I was thinking. I was going to put down 15%, leaving 85% financed interest free by seller. The seller wanted an additional 5% after six months. So both the 15% and the 5% (20%) payments would go towards the principle balance, 80% of the purchase price. How powerful is the recorded contract to protect the interest in the property? For example, say I put in 150K (20%) plus 50k in renovations. I’ve got the contract recorded initial describing my 150k paid. Say 8 months down the road, i’m in the middle of my renovations and turning over tenants, the seller runs into financial difficulty and is facing bankrupcy. He needs to liquidate his equity, so he applies for a home equity loan or a refinane with cash out. I believe the lender will see the recorded contract in a title search, but are they legally prohibitted from lending the money, or could they ‘overlook’ the recorded contract and lend the money, screwing me, the buyer with 200k out of pocket. I know this is the worst case scenario, but its a lot of money on line, which is why my partner felt he couldn’t risk it. Or, is it imposible for a lender to overlook a recorded contract when it comes up in a title search? Thanks again.

When a contract for deed is filed, you have equitable title, and the seller has legal title. I doubt any financial institution would lend with the title “clouded.”

I would include a specific directive in the land contract having the seller agree not to take out any mortgages just for additional insurance.

Get an appraisal.

Obtain title insurance.

Engage the services of a holding company to retain possession of an executed deed and the original documents.

Talk to a real estate lawyer.

Thanks Mr. Breeze

Mr. Breeze makes some good points. However, why not take title at the beginning?

With you coming up with 15% down and another payment of 5%, there’s really no reason why you couldn’t take full title to the property to start with! If the seller is concerned about whether you’d default on the note, you can include an assignment of rents clause/right to collect rents clause. So if you miss your payments, the previous owner (who is now financing the property) can notify the tenants under this clause to pay him directly, while he pursues taking the property back.

In this way you don’t have a cloud on title, you HAVE title! …and all the benefits. But at the same time, you’re giving the seller protections as well, making it a win-win situation!

This makes it pretty straight-forward and simple. We have a solution for a more complex acquisition on our website.

Oh, I thought of one more thing looking over your post: You may not want to pay it all off at the end of 16 months. Mr. Breeze noted that you might only be able to go to 75% with a cash-out refi (we’re typically dealing with 80% on larger loans). But you might negotiate the seller leaving a 2nd in place (allowing you to pull more cash out, if needed – as long as you retain sufficient cash-flow and reserves above your debt service).

Thanks KelvinBell. My partner and I tried to take title, but the Seller didn’t want to give it up. He didn’t want to be a secondary lien holder; I guess he wasn’t that motivated. I guess the best thing to do in these situations when a lot of money is on the line for the buyer up front, is for the buyer should take title, or have the controlling vehical (LLC, or trust) assigned to the Buyer. The key is motivation.